Bank Account Reconciliation Template
What is bank reconciliation?
Bank reconciliation is the process through which a company verifies the accounting entries made over time.
During the entire year, the company registers its entries in the cashbook, and the bank registers them in its passbook. At the end of the period, both entries are matched to ensure there is no differences between the closing account balance. This entire process is called bank account reconciliation.
Bank account reconciliation is a standard procedure for businesses; therefore, it must be performed periodically to keep the books updated. There are different ways to carry out bank account reconciliation: a ready-made bank reconciliation template.
Let’s dive deep into how to do bank account reconciliation and use the Nanonets bank reconciliation template. Get your template now.
What are the different steps involved in a bank reconciliation?
Every transaction that takes place in accounting typically contains at least two entries. When you sell something, you record the transaction, and the buyer adds the item to its assets or inventories. You will need to examine documents from both sides to complete the bank reconciliation procedure.
Here are the steps in the bank reconciliation process:
- Get your cashbook and bank statement.
- Ensure that the monthly opening balance is the same for both documents.
- Compare all the entries from both documents. Cross the entries that match and flag the entries that don’t match.
- Figure out the reason why the entries don’t match. Make necessary corrections.
- Mention the corrections with the proper item details for future audits.
- Once all the corrections are done, the monthly closing balance should match.
- Inform the parties involved about the modifications you've made.
- Plan a regular reconciliation schedule to fill in any gaps.
To make bank reconciliation more effortless, you can use Nanonets bank statement converter tool to convert scanned bank statement entries into a CSV.
Simplify Bank reconciliation with a bank reconciliation template now.
Why do you need bank account reconciliation?
As an accountant or bookkeeper, you may use bank account reconciliation for several reasons:
- To check the accuracy of your accounting records
- To find errors in your accounting records (or other business-related documents)
- To identify fraud or theft within your company
- To identify problems with your accounting software
- To ensure that your company is meeting its financial obligations
How to do bank reconciliation?
Bank reconciliation is verifying, adjusting, and reconciling accounts with a bank, credit card company, or financial institution. Bank account reconciliation aims to ensure that all debits and credits have been appropriately recorded within the accounting system. Some of the steps involved in bank account reconciliation are:
Check all transactions on the bank statement.
One of the first steps in bank account reconciliation is to check all transactions on your bank statement against those in your books. If you find any differences, look for the reason. It could be that:
- A transaction was not recorded in your books because it's not yet due or paid (e.g., a check).
- An error was made when recording the transaction; for example, if you wrote down $10 and then realized it should have been $100. This can happen when you are working quickly or distracted by other things.
- You entered one amount into an account but posted another amount to that same account later on (or vice versa).
Pull up your account records.
The second step in reconciling your bank statement is pulling up your records. Use the information you have on hand to compare against the bank statement, identifying any missing and duplicate transactions. This can be done manually or with a computer program that automates the process.
Find transactions that are not recorded on the bank statement.
Now that you have recorded all your transactions correctly, it's time to check for any missing or incorrect transactions. There are several ways to find these:
- Check the bank statement for missing deposits and withdrawals. If an item isn't on the bank statement, you will need to find out where it went (or whether it was never deposited). If an item is a deposit but not recorded as such, then something must have gone wrong with your recording process—you may have forgotten to record the deposit or made an error when entering it into the books. The easiest way to check for this error is by looking at each transaction individually and comparing its description with what's on the bank statement. For example: "Cash Deposit" vs. "Check No.”
- Look through your transaction list for any one-time payments made by check or cash that weren't recorded in the books. If possible, these should be entered immediately after they occur; otherwise, they should be entered at some point before they get too far away from their original date so they can still be appropriately reconciled (although there is no set deadline).
Ensure that all transactions are recorded in the books of your company.
One of the most critical steps in bank account reconciliation is ensuring that all transactions are recorded in your company's books. You must register transactions and make additions or corrections if transactions are not recorded in your company's books.
This can be done through a computerized accounting system or manually. If you do it manually, ensure that all transactions are recorded in your journal.
Locate and reconcile differences between accounts.
The next step in the reconciliation process is to locate and reconcile differences between accounts. Locate any transactions missing from your books or any transactions recorded on the other company's books but not yet registered in yours. Look for transactions entered into the wrong account, and check whether they were posted correctly to the proper time. If you find an error, correct it immediately by making appropriate adjustments and posting corrections where necessary.
The process of bank reconciliation can be complex and time-consuming, but it is an integral part of maintaining the integrity of any business. By following these steps, you will have a more accurate record of your financial health and ensure that you are on track for success in your industry.
Use our bank reconciliation template to simplify your bank reconciliation process.
What Causes Reconciliation Discrepancies?
Bank reconciliation is a process that compares your accounting records with your bank state. The whole process is automated, but it can still take time to go through all the transactions and ensure they match up. Reconciliation errors can occur for several reasons:
Inaccurate data entry can result in reconciliation discrepancies. For example, transactions may be entered too early or late to be included in the reconciliation.
- Transactions may be entered too early. For example, suppose you're reconciling an account that uses a fiscal year-end that does not coincide with your company's fiscal year-end. In that case, you'll need to consider this when entering transactions during your company's current month. In other words, if one of your accounts has a June 30 fiscal year end and you're currently entering transactions for July 1 through December 31 (your company's fiscal year), those numbers will have to be adjusted by adding or subtracting days based on their respective dates of entry.
- Transactions may be entered too late. If you're working with an account that requires special processing due to its nature or business purpose—for example, prepaid expenses such as insurance premiums—you'll want to ensure these are entered on time so they can contribute towards closing balances at the end of each period (or quarter).
Mistakes can happen, but they're not always your fault. It's important to identify the causes of reconciliation discrepancies so that you'll know how to avoid them in the future. So let’s go over some common mistakes and what you can do about them:
- Missing or inaccurate transaction information: If you don't have all of your transactions set up correctly in the books, there will be a discrepancy between bank statements and accounts receivable balances (ARB) when reconciling. The solution? Double-check all incoming transactions before importing them into the books—and check again after importing them.
- Incorrect setup: Have everything set up perfectly? Great! But just make sure that every account shows on both sides of the balance sheet and in a profit & loss statement (P&L), including owner's equity accounts such as Owner's Capital and Retained Earnings. With these critical components in place, it should be easier for you to ensure that everything balances out properly during periodic reconciliations throughout the year.
Missing transactions can be due to many reasons. Some transactions were never entered in the first place, so they will not appear in the reconciliation. Other transactions may have been entered incorrectly, resulting in an inaccurate balance. Even if your system is set up to reconcile all accounts automatically, it’s also possible that you deleted a transaction by mistake. It’s important to review these cases carefully as they may indicate errors within your system or processes.
Business owners are terrified about this one. But unfortunately, fraudsters are more creative than company owners in their methods of doing this. Here are a few examples:
- Cash payments from clients recorded in the books as received instead ended up in someone's pocket.
- Kiting techniques include delaying a deposit of cash and checks until proceeds from a subsequent deposit can cover the stolen money or checks.
- Fake checks are sent to the fictitious but real-appearing supplier.
- Funds are diverted into untraceable bank accounts.
- Theft of stock or other company resources.
- Fake bank records.
Since expert fraudsters are good at hiding their traces, it can be difficult to detect fraud at first look in a bank statement or any bank account reconciliation. These have even been known to be missed by auditors. But if something seems odd, it's worth looking into.
Prevention is the most robust line of defense against fraud. To the most significant degree feasible, segregation of jobs with required vacations should be the first thing any organization implements. Most fraudsters can be discouraged only by knowing that someone is carefully scrutinizing bank and credit card records and reconciliations and is keeping a tight check on corporate assets.